The 50/30/20 Rule

The 50/30/20 Rule is a popular budget guide, which was created by Elizabeth Warren, a US Senator whose education specialized in bankruptcy law. She’s also running for President in 2020. Read about her presidential campaign here.


Consider your monthly income (your paychecks after pre-tax insurance, retirement contribution, and taxes) then allocate 50% to needs, 30% to wants, and 20% to savings.

50% Needs

  • Groceries
  • Essential clothing
  • Housing costs
  • Bills/Utilities
  • Medical/Dental/Vision/Home/Auto Insurance
  • Minimum debt payments
  • Gas or other transportation costs
  • Home or auto maintenance

30% Wants

  • Monthly payments such as Amazon Prime or a gym membership
  • Going out
  • Entertainment
  • Hobbies
  • Vacations
  • Other retail

20% Savings

  • Emergency fund
  • High yield savings or other savings accounts
  • Individual retirement savings arrangements (IRAs)

Applying this rule to your household

To calculate your estimated monthly income after pre-tax retirement contribution and taxes, plug in your numbers with SmartAsset here.

According to PayScale the current average salary in Los Angeles is $62,604. Read about the trends in salary here.

With a salary of $62,604 but NOT including pre-tax retirement contribution or medical/dental/vision insurance costs, the estimated monthly income is $3,865.

If you were to apply the rule to this monthly income the budget would be:

$1,932.50 Needs
$1,159.50 Wants
$773 Savings

Applying this rule in Los Angeles

It is also noted on PayScale that the trend in wages in LA is up by 1.4%, but the cost of living is 43% higher than the national average.

Abodo analyzes data from more than one million listings on its site. It states the average one-bedroom, one-bathroom apartment in Los Angeles is $2,369 per month. The average one-bedroom, one-bathroom apartment in the nation is $976.16.

Using the example above, rent alone costs 61% instead of the recommended 50% Needs budget! *sigh. It’s also not including grocery, utilities, transportation, health care costs, etc.

High cost of living is one of the many reasons most people here live with a roommate, remain with their parents longer, have little savings, forego health insurance, or contribute less than the recommended 15% of pre-tax income to retirement. It’s twice as challenging with student loan debt!

What are Los Angeles locals to do in this case? Many people are working 2+ jobs. Side hustling is a normal way of life.

The cost of living in California in general is an outlier to the national average. This still doesn’t mean we shouldn’t attempt to be as close to this margin as possible or not monitor spending habits.

With hardcore budgeting and minimizing overhead costs, we can still take control of our finances despite our living situations.

Any effort in managing a budget and contributing to savings is more efficient once debt is minimized or eliminated.

Debt repayment strategies

Other budgeting methods

Use what’s best for you

The 50/30/20 Rule may not fit perfectly for everyone. Whatever your budgeting strategy and debt repayment method is, the importance is to minimize debt, be frugal, and save, save, save.

Millennial Challenge

  • How does your budgeting method compare to this rule?

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